Global Pricing Decisions II Proctor Term Paper

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Opportunities:

a) the fast growth specific to the Russian market - if only 53% of women reported using regular pads in 1996, a year later, the percentage of women stating the same thing increased to 78% (i.e. A 47% increase) b) the negative perception of tampons allowing a generous market share for pads - if in 1996, 37% of women reported using tampons on a regular basis, in 1997, only 20% of them continued to use such products c) the Russian women's tendency to move from traditional pads to the more sophisticated ones using Ultra technology and having wings (Plus) - in 1997, Always Plus registered a 5.2% unit share compared with Always Classic which reported a 2.9% unit share for the same year while Always Ultra reported a unit share five times higher that the one in the previous year.

Threats:

a) the high uncertainty of the Russian market due to unpredictable political, economic or social maneuvers b) the low level of income reaching a monthly average of $220 per household c) the unfair distribution of income between Moscow and the regions, negatively impacting on P&G sales as the adherence on the Russian capital's market is more fragile because of not reaching the pharmaceutical channel d) the irregular payment that Russian employees receive makes them give up brand preferences and choose cheaper products fitting their income level e) the considerable growth (88%) that the Polish brand, Bella, achieved in 1997 f) parallel imports which consist of fuelling the Russian market with products bought at lower prices in neighbor countries.

Identifying, evaluating, and choosing alternatives

In order to ban parallel imports, P&G Russia may consider the following alternatives:

1) reducing prices for the Always pads offered on the Russian market in order to line up this outlet to the neighboring ones

2) offering major discounts to wholesalers who buy large quantities of merchandise

3) compelling the P&G warehouses from the neighbor countries to sell products only to wholesalers from the respective countries.

The first alternative will contradict the general policy that has been applied to the Russian market so far. Thus, the corporate image might receive a major shock because Always will not be perceived as a premium brand anymore.

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Being given Russians' skepticism to sudden maneuvers, most consumers will probably think that the price decrease is a result of lower quality or less sophisticated technologies. Certainly, the company could try to prevent such negative consequences by organizing an advertising campaign emphasizing that the lower price is a reward for the consumers' loyalty to the brand or is the natural result of more advanced technologies that allowed the company to reduce its costs. Still, considering the rational profile of Russians and their negative experiences from the Soviet Era, the campaign above will probably have poor results.

The second alternative is much more viable because it allows the Always brand to preserve its price. And here is why: the large or small stores directly fuelled by P&G and having an exclusivity contract with the American company as result of the McVan method will continue to sell products at the same price while wholesalers will increase their revenues by buying at a cheaper price and selling at the price used before. Undoubtedly, there may exist temporary falls in the open-street market price but these will not be significant as wholesalers aim at increasing profits.

Moreover, the alternative will determine wholesalers to buy higher quantities and to strive to sell them to consumers.

The third alternative implies giving up local autonomy. Thus, P&G will act as an entity whose worldwide tentacles function according to what the center dictates. Therefore, for positive overall results P&G may compel its subsidiaries from Poland, Hungary, and other Eastern countries to sell their merchandise only to wholesalers from those countries. Yet, such a decision could be blamed for its totalitarian profile as it breaks the rules of free, competitive markets. Consequently, the most appropriate solution is the second one as it manages to precisely target the segment causing problems: wholesalers. Thus, no advertising campaigns will be needed in order to defeat Russians' skepticism and no totalitarian light risk to fall over the company's image......

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